This video is about preparing your cashflows for a recession, it focuses on the plans you need to make in case of an emergency and how to calculate your cash movements.
Prepare your business for the upcoming recession – Part 3: Cashflow
How can you start preparing your cash flows for an upcoming recession? A lot of people say that recession is a self-fulfilling prophecy. So the more people talk about it, the more likely it’s going to happen. I’m very aware that by having a several part series on how to prepare a business for a recession, I could be contributing to this cause. However, the other side is all the stuff we’re talking about now is about improving the health of a business. and if everyone focused on improving the health of their business, we would then avert a recession. that’s a bit of a paradox, but I want to cover how to get your cash flows ready.
Building a cash flow plan
We use a really good bit of software in our business. It’s called Float and it connects up to Xero which is a accounting software. You can do some basic cashflow planning on there, but we use Float because it allows us to run a 36-month cashflow plan. You could do it on a spreadsheet, but with a cashflow, it’s about your money coming in and going out. Let’s say, you’ve got X amount at the bank today, and everything you’re expecting to come in every month for the next year comes in, and if you’re expecting a certain amount to go out, how much would you have left in a years time? What you’re doing is predicting your bank balance in a years time. If you do even a basic cash flow planning activity, it will make it really obvious to you if you’re going to run out of money.
Why would you want to know if you’re going to run out of money?
Knowing in advance if you’re going to run out of cash, gives you the advantage of thinking ahead about whether you’re going to: either borrow more, make changes in your business to actually reduce your costs, or you could go out and sell more. The key point is you actually need to know in advance. By the time you run out of money, you have no more cards to play. All the changes you need to make in your business to make more money, make the company more profitable, it all costs money.
So, you can’t make these changes when you run out of money. You’ve got to start now. Just by getting some sort of basic cashflow system in your business, whether its business software, if it’s outsourced, or you just find an easy way to do it yourself, it’s crucial to know before hand.
What if sales have reduced?
One of the things I do, is really push myself into scarcity mindset just for this once activity and then switch back to an abundance mindset. Let’s say, I lost 25% of my sales, how will I then make business work? It’s important to ask that question because you need that plan to start thinking about things like: What would I have to do to change the costs? What would I have to do to then regrow my sales? How can I make that work? Prepping for this stage in advance gives you a lot more confidence going into recession. You’ll be making the right decisions, you’ll still be able to continue taking risks, risks that your business needs to grow.
Start understanding your cashflow. Understand what it’s going to look like in a years time, and create an emergency plan to balance your books in case the worst possible thing happens.
If you don’t do your own cashflow, and you need an expert to do it, then get in touch with us. As part of our Apex programme, we manage our client’s cashflows for them using Float. We were actually working a client a couple of weeks ago, and we spotted a serious issue building up in their business. And by spotting it early, it meant they had about eight months to fix it. So it’s really worth doing it because cashflow planning saves businesses.